In this Essential Guide, you should learn Cardano basics and how to perform the most common operations.
Buy Cardano ADA
Buying options include bank transfers, credit/debit cards, depending on where you live (in some countries, governments banned using credit cards to purchase cryptocurrencies).
The P2P (peer to peer), or person to person without intermediaries today, has not so many options (soon there will be many, same about Cardano Blockchain). Binance has a P2P platform. Check the Official list of exchanges to buy ADA (the exchanges that read Shelley-ready) to find one that fits your needs. For a detailed review of some exchanges, review our post about the best cryptocurrency exchanges.
Create a Wallet
The best option is to keep your ADA in a non-custodial wallet. Leaving your funds in exchange could be risky since you are not the owner of the private keys, and your funds can be hacked, confiscated for legal issues, or the company that owns the exchange can go bankrupt. The official wallets are Daedalus or Yoroi, but there is also ADAlite, which has a good reputation.
Always download the wallet software from their official sites when using your browser. Never access an address sent to you by email or a messaging app because it can be fake (phishing).
Daedalus: it is a full node wallet that connects directly to the blockchain. It is only possible to install it on a pc, because of its hardware demands (recommended requirements are 64-bit dual-core processors, 8 GB RAM, 15 GB free disk space, and broadband Internet connection). The advantage is the connection privacy, as there are no intermediaries between you and the network. The problem is that it can take a few minutes to connect, and if you connect it after many days, it must update all the blockchain data since your last connection.
Yoroi: It has two versions: Yoroi Mobile, which runs on the cell phone (Android or IOS), and Yoroi Desktop Extension for Chrome or Firefox browsers. The interface is much faster as it is a lightweight wallet because it does not store the entire blockchain. The advantage is that it requires little computing power and network bandwidth and has desktop and mobile versions. The disadvantage is that you have to connect to Emurgo servers, its developer, a serious company responsible for the commercial development of Cardano.
Staking in Cardano is a great way to get passive income from ADA without risking your funds since you control the private keys, and you can dispose of your coins at any time (Staking does not lock your coins). When you delegate your ADAs to a Stake Pool, you contribute to validating transactions on a Proof-Of-Stake Blockchain like Cardano.
By delegating, we can help make the Cardano network more operational and functional. The rewards are an incentive to do so, thus increasing the chances that the chosen Stake Pool will produce blocks.
When you first delegate your wallet, it creates a delegation key to identify your wallet's staking (if you make more than one wallet and then delegate, the process is the same for each one). You'll have to one-time deposit 2 ADA and a network fee of approx. 0.17 ADA. If you un-delegate in the future, the 2 ADA deposit is refunded, but not the fee.
Receiving delegation rewards
Rewards are an incentive to Pool operators to keep the network operational and functional. They are paid after 15-20 days, depending on when you have delegated.
Once you start receiving rewards, if you do not interrupt the cycle by removing all your funds from the wallet or re-delegating, you will receive rewards for the previous epochs. The reward amount is always proportional to the amount you had in your wallet four epochs ago.
Every reward is self-delegated and thus generates the magic of compound interest. Any ADA sent to your wallet is automatically delegated. In Yoroi, there is no need to "claim" rewards unless you want to spend those ADAs or send them to another wallet. Claiming has a net cost of ~0.17 ADAs.
The ROS (return on staking) is around 5% to 6% annually. It depends on the Pool performance. In general, it tends to that value (except for saturated pools, or pools that don't sign blocks because they have too little delegation or subpar work from the operator because he has network connection failures, which is not usual for Cardano pool operators).
We can delegate to multiple pools using multiple wallets. That way, you not only decentralize the network (it's healthy), but you have different returns, but as I said, they all tend to the same when compounded annually. You can delegate to another pool at any time, and you don't lose any rewards.
Check your rewards in Cardano PoolTool by clicking on the "Rewards Data For Taxes" button by typing any of the "Receive" addresses of your delegated wallet in the "Address" box, and then follow the link it shows.
Choosing the right Stake Pool
As a delegator, you naturally want to get the highest rewards, so you should carefully choose the appropriate Stake Pool. The most important factors are the saturation limit and specific parameters, such as commission and generating blocks by a pool.
Do not delegate to saturated Stake Pools because you will get lower rewards. Delegators do not all go to one Pool because it would harm the network's decentralization. Today, the protocol parameter determining saturation (k) takes the saturation amount above 65 million ADA. If you choose a saturated pool, you do not lose your ADA. You simply collect fewer rewards compared to a non-saturated Stake Pool.
In general, the Pool with more than ₳1 million in the delegation will sign blocks, and for that, you will receive rewards. If you don't sign, there are no rewards. These small pools, when signing blocks, collect a lot of rewards per epoch, proportionally more than large pools, which sign a lot of blocks every epoch. The protocol (Ouroboros) randomly chooses the pools that will sign in each epoch and weights in that lottery to the delegation (it has importance in the randomness), and when a minor pool signs, it gets "lucky," and that raises the amount of ADA that you will receive in rewards. As I said, most pools currently yield 5% to 6% per year.
If you choose a small pool, do not despair if an epoch does not sign a block because when it signs, the amount of ADA you receive will compensate for not having signed in the previous epoch (it has to do with "luck" and how Ouroboros work). It's a good idea to know the pool operator's actions through its website and social networks, and you can ask him questions. He will surely help you, and if he does not, it is not a good pool to choose from.
The operators with more than one Pool do it because their pools are so big that they are getting saturated, and then they create new ones to take part in their delegation to these pools. They are large pools, and as I said, I suggest delegating to small ones to help decentralize Cardano. You will collect equal amounts of ADA in the long run.
Look at the Pool's reliability. It has to be running 24/7 to validate blocks because it does not have any signing operation if it is not connected. There are no rewards (as I said, most Cardano operators have a good performance on this issue). Pool operators use bare metal machines (on-premise) or can use cloud services such as AWS or Google Cloud Platform, among other providers, to ensure decent reliability. Check what the operator says on their website regarding the infrastructure or ask them how many relays (blockchain connections) they have. The more relays it has, the better (recommended minimum 1).
Also, check if the operator of your Pool contributes to the Cardano community, with educational content, or informing in social networks about issues of interest, or building projects in the Cardano blockchain, or supporting charities (that you can check and that it is not a scam).
Every Stake Pool has a fixed margin (fix fee) of a minimum of 340 ADA. The higher this is, the fewer rewards you will charge because it is the cost that operators deduct before distributing rewards (most charge that minimum).
Finally, every Stake Pool has a variable margin, which is the payment that he considers appropriate for his work as a validator. The Pool subtracts the variable fee before paying you rewards. Most of them are between 1% and 3%, and some momentarily have 0% to attract new delegators (they are only willing to charge the cost, fix fee, and do not receive income for their work). If the fee is between 1% and 3%, it doesn't matter which Pool you choose because it doesn't have a significant economic impact on your rewards.
Some useful websites
Github repo of the Cardano Node
This post was first published by the author in Vantica Trading